Swiss banking giant UBS on Thursday said it would swing into profit in the third quarter, as it seeks to regain client trust after successive quarters of losses on massive asset writedowns.
UBS last year posted its first-ever full-year loss, followed by two successive negative quarters this year after writing down more than 42.5 billion dollars' worth of subprime-related assets.
With the financial turmoil in the United States worsening over the past two weeks, some analysts had expected UBS to post further writedowns when it reports its third quarter results on November 4.
But even as the contagion spread from the United States to Europe this week, with governments having to step in to save European banks Fortis and Dexia, UBS said it was turning a corner.
"Despite recent extremely volatile market conditions, UBS currently expects to report a small profit for the third quarter, based on preliminary estimates," said a statement summarising Chairman Peter Kurer's address to shareholders.
The bank, whose shares have been wildly volatile in recent weeks, would also turn a profit in 2009, Kurer told more than 2,300 shareholders who attended the bank's extraordinary general meeting.
The bank's moves appeared to satisfy shareholders, as the meeting was significantly calmer than the last session when dozens of investors took to the podium to vent their frustration at the bank's management.
Kurer also underlined the bank's commitment to making UBS profitable again.
UBS's chief executive officer "Marcel Rohner and I have said that the Bank will be profitable in the year 2009... Despite the difficult environment and the latest developments we still are fully committed to and optimistic about achieving this objective," he said.
Investors greeted the news positively, keeping the stock in positive territory all day. At 3:43 pm (1343 GMT), it was up 11.27 percent to 21.92 Swiss francs, the top gainer on the Swiss Market Index, which was up 0.85 percent.
Analysts at Bank Wegelin said in a note to clients: "The last few days' worst fears appear not to have come true. The further reduction in risk positions would be taken positively."
While it noted that there were still question marks surrounding the bank's strategy, "all in all, relief should dominate."
Bank Vontobel's analysts saw the bank reaching a turning point and said it was recommending its clients to buy UBS shares.
"We think that UBS is close to reaching an inflection point and we see the risk/reward more balanced," it said in a note to clients.
UBS had disposed of many of its US commercial and residential mortgage-related positions, said Kurer, a move that Bank Helvea's analyst Peter Thorne described as "particularly encouraging."
"Risk positions on our balance sheet have been written down, closed out or sold. Headcount and operating costs are in the process of being reduced," Kurer said.
The bank has also embarked on a programme to reposition itself and take remedial measures following the crisis, including the way it apportions risks.
Kurer also cited as a priority the settlement of major legal cases such as a US investigation into whether the bank had helped its US clients to evade taxes.
It would stop offering cross-border services to clients in the United States through entities that were not regulated there, it said.
"We will completely exit this business and have established a project team to implement this in the fastest and most efficient way within the confines of the law," he said.
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